Who Gets Whistle-Blower Protections?

When the Supreme Court convenes Tuesday to hear oral arguments in Lawson v. FMR LLC, it will wade into a debate over the recent, vast expansion of the number of employees who are eligible for whistle-blower protections.

The case hinges on the meaning of a section of the 2002 Sarbanes-Oxley law that protects from retaliation public-company employees who come forward to expose securities-law violations. At issue in Lawson is whether the provision also covers employees at those firms’ subsidiaries and subcontractors.

The primary plaintiff in the case, Jackie Lawson, worked at a privately held subsidiary of mutual fund giant Fidelity. She alleged in a whistle-blower filing that, after raising objections to the financial reporting practices of her employer, she was harassed and threatened, which eventually led to her resignation. Fidelity, which would be required to reinstate Lawson and also pay back pay and compensatory damages if found in violation of whistle-blower rules, has argued that the Sarbanes-Oxley protections apply to employees of public companies only, and not to employees of the privately held entity where Lawson worked.

Broadly, the case is a test of whether courts and government agencies will continue to extend whistle-blower status – and attendant protections – to a growing number of American workers. To help readers understand the background and stakes in the case, here’s a primer on whistle-blowers in the workplace:

What does it mean to be a whistle-blower? A whistle-blower is a worker who reports suspected violations of safety regulations, securities laws, fraud, or other serious wrongdoing by a company or a company’s employees. When the person notifies superiors of those violations, certain protections kick in: It becomes illegal to fire, harass or otherwise retaliate against the whistle-blower as punishment for reporting the transgressions.

What was the original purpose of whistle-blower laws? Protections were originally extended only to employees of a small group of industries and companies whose work had some impact on public safety. Some of the early laws covered workers at nuclear plants and transportation companies.

Why do we need these laws? So that employees who witness (or believe they’ve witnessed) certain types of law-breaking or safety problems can come forward without fear of harassment, persecution or dismissal.The government’s broad goal, depending on the circumstances, is to protect public safety, taxpayer money and the interests of workers, shareholders and others who would be hurt by serious financial fraud.

What happens when companies are found in violation of these protections? More than 20 federal statutes govern whistle-blower protections, all overseen by the Whistle-blower Protection Program based at the Occupational Health and Safety Administration of the Department of Labor. OSHA investigates complaints it determines to be valid. If the agency finds that retaliation took place, it issues an order generally requiring the employer to reinstate the worker, pay back wages, and restore benefits, along with “other possible remedies to make the employee whole,” as OSHA notes. Employers can contest the orders.

What kinds of violations trigger whistle-blower protections? There’s no single, clear answer. Certain transgressions, such as massive bank fraud, are fairly obvious, but there’s no threshold dollar amount, or specific impact on the bottom line. If someone says his manager is fudging expense reports, would that count? What if it’s a systematic problem in the whole company? The difficulty of establishing clear guidelines has given federal agencies a lot of discretion, and during the Obama administration, agencies such as the Department of Labor and the SEC have interpreted the laws expansively, employment lawyers say. Generally, federal courts have sided with agencies in these matters. The Lawson case could signal an end to that deference, says employee-side attorney Scott Oswald of the Employment Law Group.

What’s changed in the last few years? Several pieces of legislation have significantly expanded whistle-blower protections since 2009. These include the Fraud Enforcement and Recovery Act, passed in 2009 under President Obama but supported by President Bush and many Republicans in Congress; the Dodd-Frank Act, passed in 2010; The Affordable Care Act (aka Obamacare), also passed in 2010; and the 2013 National Defense Authorization Act. Together, these laws added coverage for federal contractors and also made it possible for some whistle-blowers to collect large rewards for reporting abuse.

Who is now covered by whistle-blower laws? Broadly speaking, the laws cover employees at publicly traded or highly-regulated companies, said Greg Keating, co-chair of the whistle-blowing and retaliation practice at management-side law firm Littler Mendelson. The first half of that is fairly straightforward (though, as noted above, the court will decide whether Sarbanes-Oxley extends to contractors and subcontractors). As for the highly-regulated companies, this now means not just firms where broad safety concerns might arise but also those that might be accused of defrauding the government, particularly around issues like Medicare billing or defense contracting.

How many American workers are shielded under these protections? It’s impossible to say, especially with the Lawson case currently up in the air.

If Lawson is decided in favor of the plaintiffs, protections could be expanded from around 4,000 public companies to 8 million businesses that operate as contractors or subcontractors, says Keating. In addition, someone might be covered based not on the type of company she works for but on the type of wrongdoing she reports. The ACA provisions, for instance, conceivably apply to nearly every American who works for someone other than himself if the person is reporting ACA violations.

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The Law Blog covers the legal arena’s hot cases, emerging trends and big personalities. It’s brought to you by lead writer Jacob Gershman with contributions from across The Wall Street Journal’s staff. Jacob comes here after more than half a decade covering the bare-knuckle politics of New York State. His inside-the-room reporting left him steeped in legal and regulatory issues that continue to grab headlines.

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